Dealing with a deceased persons Estate may often involve scenarios more complex than those envisaged. It is possible, for example, that the deceased owes money, is owed money, or even that they both owe money and are owed money! In any case this will affect the value of their Estate. We will deal here with what happens if the deceased is owed money, before considering what happens if they owe money.
Money owed to the deceased is counted as part of their Estate: Their Estate is everything they owe and are owed less anything they owe. It will in this case become the responsibility of the Personal Representative who acts on behalf of the deceased to claim back the money owed, and it will be in the interests of all the benefactors of the will that this is achieved.
Money owed to the deceased must be declared as it affects the amount of inheritance tax on the deceased’s Estate and may also impact on what is paid out under the terms of the will.
Recovery of casual debts related to sales or money lent may be difficult and there will be no legal obligation on the part of the debtor to pay outstanding money. In many cases it will be difficult to prove how much of a debt is owed, and even if a debt exists at all. This demonstrates the importance of having written agreements drawn up of all significant debts owed – with no written agreement even in your life time a debt owed to you is not worth the paper it is written on, whereas a dated record of the agreement is binding: This goes for contracts of all kinds.
Be sure also to check whether the deceased may be owed things such as insurance on damage or theft of property, tax rebates, and so on.
Business debts should be recoverable, although the law regarding business debts varies depending on what type of business owes money. In the case that business debts are owed it is in your interest to seek legal advice. Your first port of call may be the Citizens Advice Bureau.
Dealing With the Debts of the Deceased
When someone dies it is often wise to advertise in the local papers for creditors, in order to see whether they are owe any money. As well as doing this, the Personal Representative must search through their personal documents and their bank accounts (or statements) for evidence of regular and ongoing debt payments. If they do owe anything then this amount must be taken from the total value of the Estate and will therefore reduce their Inheritance Tax liability.
All debts must be paid for from the Estate of the deceased, although it must be noted that this cannot be done until some Inheritance Tax has been paid on the Estate.
Be sure to tell all creditors that the debtor is deceased as this will allow some reprieve from immediate payments having to be made. It is unlikely if there is ni money left in the Estate that the beneficiaries of the will need settle the debt unless it was incurred a joint debt.